Centre for London are starting a new programme of research to make impact investing work in London.
The world’s big problems – climate change, lack of healthcare and education, poverty – are solvable, but they are mind-blowingly expensive to solve. Governments don’t have this kind of money. Businesses and investors do but they don’t use it the right way. Impact investment, where the power of capital is harnessed for social good, offers our best hope: at least according to Sir Ronald Cohen, the venture capitalist and now a key figure in Britain’s impact investment world, in his new book Impact.
This capital can be harnessed in a few different ways, but the aim is the same: to make a difference to the world while investors still make a return on their cash. In some cases, governments or other large payers offer social impact bonds where investors get their money back based on how much is achieved – for example how many children complete their education. More commonly, investors choose to invest through equity, loans or shares in organisations which also offer environmental and social good. This might include reducing carbon emissions, supporting people who are homeless, or delivering mental health care – the list is almost endless. The aim is that the investor gets their money back and will invest it again in other useful organisations.
London is emerging as an important centre for impact investment. This is partly because it is an important centre for general investment: there is a lot of capital available, and a lot of skill. It’s also because Britain has a regulatory and tax regime which can increase the capital available for impact investment. But so far, this impact investment has not really been ‘about’ London. Place based approaches, which are increasingly common in the public and third sectors, have not been much used for impact investment so far. As is often the case in London, governance makes things complicated – local authority based approaches might be a bit too small to offer the scope that investors need to see, especially in the outer boroughs where there are fewer big institutions, and whole-city approaches might be a bit too big to be meaningful.
But there are signs that this is changing. London’s big charitable foundations are increasingly interested in making social investments as well as giving grants. Local authority community wealth or community assets approaches, which seek to use their financial power for the benefit of local residents, are generating interest across the political spectrum: there is potential to link this work with private sector investment to increase its impact and maintain a democratic link to the local community. And mainstream firms looking to make social investments often choose housing, which gives the potential for useful collaborations where one group invests in bricks and mortar for vulnerable groups, and another invests in social impact bonds which fund services for people in those groups.
Londoners are getting interested as well. More and more people want to invest their pensions and savings in companies which do good, or at least do no harm. Research from The Beacon Collaborative shows that wealthy people in London are more likely than those elsewhere in the UK to want to be actively informed about and involved with the causes they support, and to say they are knowledgeable about social investment: they may be interested in social investments related to where they live or where they grew up, alongside their mainstream investment and philanthropic activity.
At Centre for London, we think there is great potential for impact investment to address some of our city’s most pressing challenges. We’re starting a new programme bringing together local authorities, investors, philanthropists and local communities to make social investment work for London and Londoners. To find out more or to share your experiences and knowledge please contact our Research Director Claire Harding.